According to estimates by the investment Bank, the new US sanctions, which can introduce against Russia closer to November, will have no impact on the credit ratings of the country, however, will lead to the acceleration of inflation due to the weakening of the ruble. “The devaluation of the ruble by 10% would accelerate inflation by 1 percentage point by sliding a fair yield on government bonds to 8.3 to 8.8%. Thus, the OFZ would be more expensive than the expected fair value in the case of sanctions, only at very negative sentiments towards the reaction of the ruble”, — stated in the review.
In the normal range
The share of foreign participants in the market of public debt decreases from April 2018, when it amounted to 34.5 percent. Sales began because of the sanctions of the US Treasury against several companies and individuals from Russia, which was introduced on 6 April and continued into August and September — this time against the background of media reports that the U.S. Congress is considering a bill imposing limitations on the participation of American investors in the OFZ. The market is still no understanding of what will be new sanctions — they will affect only new issues of government bonds, or will cover the entire Russian national debt.
Now the 6-year OFZ bonds traded with a yield of nearly 9% per annum, while inflation is likely to remain within the target level of the Central Bank at 4%, despite some problems due to the VAT effect of the weaker ruble on retail prices, rising gasoline prices and so forth, says analyst Department of market analysis “Opening Broker” Timur Nigmatullin.
“The real yield of almost 5% is a very good indicator, — said the expert. — However, we must understand that the value of government securities to Russian and foreign markets are different, since the latter takes into account more and exchange rate risks, against the backdrop of volatility could reduce the attractiveness of real rates. Also, now is not a good situation for short-term investors who do not intend to hold bonds to maturity”.
Insights BofA Merrill Lynch the fair — the yield on the long OFZ significantly above the inflation rate, however in assessing the fair yield we must look at the key rate of the Bank of Russia, which was raised in September to 7.5%, draws the attention of the trader on the bonds IK “ATON” Mikhail Vashchenko.
In other words, the difference between the cost of money in Russia and the yield on the OFZ is only 1.3 p. p. “I don’t think this is some overly high. If viewed from the side of the foreign investor, whose country is also growing rates, you have to understand that he will have to lay still and the risk of ruble fluctuations. Therefore, the yield on OFZ for both Russian and foreign investors with a high difficult to call,” says Vashchenko.
This is the new normal
Not agree with the assessment of BofA Merrill Lych, the analyst of Raiffeisenbank Denis Poryvai. In his opinion, to take into account when estimating the fair yield Russian securities only inflation and the dynamics of the exchange rate correctly at a consistently high outflow of capital in the OFZ market.
The model of “inflation plus” works when capital moves from the US to emerging markets and when there is no threat of restrictions on the participation of foreign investors, says Poryvai.
“Now the paradigm has changed, including due to an increase in interest rates in the United States. Now, to understand a fair yield, you need to pay attention to the difference in rates in rubles and dollars. However, this rule does not work for countries with a deficit current account in Turkey. Therefore, we must also look at the composition of the anchor investors and those price levels at which they are willing to buy the paper,” the analyst said.
When the interest in OFZ bonds from foreign investors was high, the yields of government securities was lower than the rate of the interbank market RUONIA, says Poryvai. After the imposition of sanctions and the outflow of foreign capital, the situation has changed — demand for OFZ provide only internal members (UK or banks).
In terms of reducing liquidity and leaving of non-residents it is profitable to buy debt only if it will award to the rate of the interbank market. “Now the yield on OFZ rates RUONIA just above 150 basis points. Earlier, in 2012, when the market was not liberalized and the share of non-residents was below 10%, the spread was 200-300 basis points. We will return to this value if BFL will impose sanctions. Therefore, we believe that the fair yield of government securities in this case — more than 9%, higher than current levels,” concluded Poryvai.